Can Credit Unions Survive Selling to the Mass Consumer? The New Challenges of Expanding Fields of Membership
The move to expanding fields of membership (FOM) and community charters has been the strategy for many credit unions across the United States in an effort to grow membership more quickly. To industry consultants, these moves have shown lackluster results as the entire credit union movement has barely grown by 2% annually. In markets heavily populated with competitors, the idea of opening the doors to the community to experience more robust growth has been met with less than anticipated numbers. In discussing ways to grow a credit union, the ability of credit unions to attract consumers in a huge zip code, county or other metropolitan area is held back by limited marketing dollars. As financial cooperatives, credit unions generally spend less on marketing and advertising than for-profit competitors. Therefore, every marketing dollar must work hard to establish the credit union brand in the mind of members and prospects. In addition, inside credit unions, most are still structured across product segments (staff allocated to loans or new accounts) but not along member segments. The ability to segment members by profitability, by life cycle, by balance level, all exist, yet the allocation of resources is generally not done by any of these segmentation strategies. Competitive advantage may lie in member segmentation; however, this requires a mind set change across an entire organization as well as a reworking of the marketing budget. The move toward determining the impact on return on assets (ROA) with segmentation strategies requires shifting marketing priorities. More than one in five organizations spend more than 45% of their marketing budgets on "target marketing," according to 2005 Executive Report: Target Marketing Priorities Analysis, underwritten by Harte-Hanks, Inc. and prepared by CSO Insights, Inc. It also mentioned that nearly three of four companies plan higher investments in database management this year. Within credit unions, Marketing Customer Information File analysis software offers the opportunity to utilize database mining and management for targeted direct mail. As an incredibly important tool to attract more member business, through MCIF analysis for clients, we have found: * A six-month stretch is key to breaking an old habit and to getting the new one to take hold. Every prospect will need to go through a process of considering the credit union, making the effort to sign up, and then to changing the physical habit of driving to a new branch office or ATM. This requires ongoing touches to reinforce a new relationship with the credit union. * A nine-month window exists for encouraging new member households to take on additional services. An ongoing touch program that consists of multiple letters or self-mailers is important to remind them of the value of the credit union and nudge them into a deeper relationship. * The top 10% of your most profitable member households are important for retention. There will always be some churn as member households become profitable with a large loan and then may drop out of the top profitability category when the loan is paid. Yet, without these members, the credit union would feel the impact directly to the bottom line. The top 10% of most profitable member household often accounts for more than 100% of the credit union's profitability. Consistent, ongoing mailings that we call "love letters" help to touch this important group to attract more and retain their existing business. * 3% of existing members will be purchasing a vehicle and probably needing a vehicle loan every quarter. A profile of most likely borrowers can be used for ongoing quarterly promotions. In addition, the current members with loans need to be targeted to recapture their interest for that next vehicle loan as they approach key times of payoff like 18, 24, 36, 48 months. * Half a percent of existing members will be in the market for a home equity loan each quarter. A specific target group should be reminded every quarter that the credit union offers home equity and mortgage loans. * 60% or more of debt for an existing member is often held outside the credit union and this requires promotional campaigns with targeted direct mail to encourage members to get new loans at the credit union as well as to refinance their loans from other financial institutions. Profiles can be determined from the database of the credit union using MCIF to target households for additional products on a regular and clockwork basis. Then, the marketing return on investment (ROI) can be tracked by determining if anyone in the household acted on the offer for the targeted product or if other business was captured from that household. As examples of targets, these scratch the surface of household segmentation and the opportunities that lie in capturing more business from existing members and building new member relationships. Therefore, to improve ROA, credit union management teams can adopt strategies that include: * Market segmentation using target marketing solutions and promotion tracking to evaluate the Marketing Return on Investment, * Marketing consistency is key to retaining members, especially profitable members, as the uniqueness of the credit union's FOM vanishes, and * A focus on branding is important to build confidence with prospects with a definitive competitive position.